Laos Ambitious development goals and great need for reforms

It is the goal of the Lao government to enable the country to graduate from the group of least developed countries (LDCs) by 2026. However, Laos is currently in the midst of a severe economic and financial crisis. The impact of the COVID-19 pandemic has hit the country hard. The situation is exacerbated by sharply rising prices, for instance for seeds and fertiliser, as a result of Russia's war of aggression against Ukraine.

Government building in Vientiane, the capital of Laos — Straight to

Economically, the Lao PDR has become more open since the mid-1980s and has introduced market elements. Reforms are needed, in particular, in the areas of sustainability, democracy and the rule of law, and transparency.

The development model that has been used so far has negative impacts on the environment and has not contributed sufficiently to poverty reduction. The economic growth which Laos has experienced in the last few years is mainly attributable to commodity exports, the expansion of plantation farming, and major mining and dam construction projects. Few raw materials are processed locally. Labour productivity is low, and there is a lack of jobs that provide a living income.

In the latest Human Development Index (HDI), Laos ranks 139th out of 193 countries.

German development cooperation with Laos

The Federal Republic of Germany and Laos have maintained diplomatic relations since 1958. After the communists seized power in Laos in 1975, bilateral development cooperation with the then Federal Republic of Germany (West Germany) was suspended until 1990. From 1981 to 1989, however, Laos was a partner country of the German Democratic Republic (GDR / East Germany). This was the starting point for the Federal Republic of Germany to restart its cooperation with the country in 1990.

Within the OECD, Germany is one of the largest bilateral donors to Laos. In 2022, the Federal Ministry for Economic Cooperation and Development (BMZ) committed 38 million euros in new funding for Laos. This comprises 24 million euros in Financial Cooperation funding and 14 million euros in Technical Cooperation funding.

The BMZ had planned to phase out its development cooperation with Laos by the end of 2024. However, in view of the current crises, which are making it more difficult for the country to graduate from the group of least developed countries (LDCs), Laos was included in the list of partner countries again in 2022.

Cooperation focuses on the following core areas:

Conserving nature and natural resources | Areas of intervention: biodiversity, forests
Transformation of agricultural and food systems | Area of intervention: rural development
Sustainable economic development, training and employment | Areas of intervention: technical and vocational education and training, private sector and financial sector development

All the programmes under the three core areas are part of the European Union's Team Europe Green Initiative in the Lao PDR. In addition to these activities, the BMZ supports civic engagement for good governance and efforts to strengthen government accountability and to improve the rule of law.

Germany's development cooperation with Laos on this core area is geared towards two goals: one is to improve the conservation of the country's abundant forest resources and biodiversity, so that Laos can contribute to global climate action and biodiversity conservation in this way; the other is to improve the living conditions of the rural population by managing natural resources responsibly.

In the rural areas of Laos – which are home to more than 60 per cent of the population – infrastructure in the areas of transport, water, electricity and telecommunications is not very developed. Lao-German development cooperation is helping to improve living conditions, particularly in the difficult-to-access highland regions.

So far, the skills and knowledge which young people acquire in the Lao vocational training system rarely match those needed in the labour market. This means that companies lack skilled workers while youth unemployment continues to rise. Germany is assisting the government and the private sector in setting up dual (industry-based and school-based) training programmes.